If the multiplier is 6 and exports decrease by $30,what impact will that have on aggregate expenditure?

Question

Quizplus · Accepted Answer

The multiplier effect shows the impact of a change in one component of aggregate expenditure on the overall aggregate expenditure. The formula for the multiplier is:

Multiplier = 1 / (1 - MPC)

where MPC is the marginal propensity to consume.

If the multiplier is 6, then a decrease in exports by $30 will lead to a decrease in aggregate expenditure by:

Change in Aggregate Expenditure = Multiplier * Change in Exports
Change in Aggregate Expenditure = 6 * (-$30)
Change in Aggregate Expenditure = -$180

Therefore, the correct answer is D, that is, "decrease by $180".

If the Multiplier Is 6 and Exports Decrease by $30,what